A joint operating agreement is one of the most common documents used in the oil and gas industry. As with any other legal document, it is absolutely crucial to understand the consequences of the joint operating agreement before signing it. The provisions in the agreement are sometimes open to interpretation, so it should come as no surprise that Texas energy litigation sometimes results.
Will your joint operating agreement land you in court? Let’s see what can go wrong with this type of agreement and, if you suspect you have some issues with your current agreement, contact one of our knowledgeable attorneys for the advice and guidance you need to avoid going to court.
Key Elements of a Joint Operating Agreement
The parties are agreeing to participate in joint operations at a specific property. Of course, the operations include exploration or removal of oil or gas. However, joint operating agreements contain many of the provisions common in other legal documents, including:
· A description of the agreement’s intended purpose;
· Details about how operations will occur;
· Each party’s responsibilities, rights, and obligations;
· Each party’s property interests;
· Descriptions of each party’s roles, particularly operator and non-operator; and
· The term the agreement covers.
Some provisions in a joint operating agreement address dispute resolution. Language in the agreement typically provides methods of handling:
· future disputes,
· unanticipated disagreements, and
· potential deviations in the parties’ interpretation of the agreement.
The actual performance of the joint operating agreement may not run smoothly.
Where Problems Can Occur
The joint operating agreement can be breached just like any other contract. Breach of contract means that at least one party is not complying with the terms of the contract. For example:
· The operator might fail to control operations at the property. This failure could damage the property, render any exploration ineffective, and reduce production. Financial damages suffered by other parties to the joint operation agreement could lead to litigation.
· A non-operating party could interfere with production, possibly by preventing the operator from performing its obligations.
· A party required to provide financial support could drop out, endangering the project’s future.
In fact, the parties could disagree about any provision in the agreement. And some disagreements arise because one or more parties simply do not understand the agreement. That’s why we encourage you to have an experienced oil & gas attorney review any joint operating agreement before you sign.
Ending a Joint Operating Agreement Dispute
Yes, sometimes these disagreements end in litigation. If so, a lawsuit could end with a dismissal, a negotiated settlement, or a verdict.
The oil and gas industry is sophisticated and complex. What appears to be a simple agreement to get something done can turn into lengthy litigation. It is imperative that you work with a lawyer that is experience in handling these types of agreements, not just a general contract lawyer.
The attorneys at Henke, Williams & Boll assist clients like you with litigation and other matters. But we don’t just help a little. We win cases through aggressive representation using extensive knowledge of the Texas legal system.
Our attorneys have more than 100 combined years of experience practicing law, and our broad range of knowledge enables us to provide practical solutions tailored to the unique needs of our clients. We are a proud law firm with commitment and passion for assisting those in need. Let us help you get the results you deserve.
For a free consultation or phone appointment, call 713-940-4500 or use the convenient contact form located on our website. We represent clients in the Houston area, including Harris County, Montgomery County, Waller County, Fort Bend County, Galveston County, and Brazoria County.